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CEE MARKETS-Leu hits 6-month low on worry over loose Romanian budget
December 23, 2016 / 11:11 AM / a year ago

CEE MARKETS-Leu hits 6-month low on worry over loose Romanian budget

* Leu also sets one-month low vs forint, 6-week low vs zloty
    * Fiscal loosening is a trend in region, robust growth seen
    * Romanian budget bigger worry than elsewhere in CEE
    * CEE equities well outperform other emerging markets

    By Sandor Peto
    BUDAPEST, Dec 23 (Reuters) - Romania's leu fell to a
six-month-low against the euro and multi-week lows against
Central European peers on Friday amid concerns that the next
government in Bucharest will let the budget deficit rise.
    Expectations for economic growth at 3-4 percent in the
region next year are buoying assets as investors are closing
their books for the year.
    As central banks in the region have mostly run out of tools
to stimulate their economies, governments have tended to
increase spending. They are also striving to stop a steady loss
of workers leaving for more prosperous countries in the west of
the European Union.
    Romanian governments over the past two years have taken the
lead on wage increases and tax cuts in the region, and the
election held on Dec. 11 will return the Social Democrats, who
launched that policy, to power.
    Romanian President Klaus Iohannis said on Thursday he will
appoint a prime minister-designate after Dec. 25. 
    The fiscal stimulus is likely to help the Romanian economy
grow by almost 5 percent this year, Nordea analyst Anders
Svenden said in a Dec. 22 note. "And the next government is
unlikely to be more responsible in terms of fiscal policy and
hence risks have increased, also for the (leu)," he said.
    The leu touched a 6-month low against the euro,
and traded at 4.5325 at 1025 GMT, weaker by 0.1 percent from
Thursday.
    It also set a one-month low versus Hungary's forint
, which gained 0.2 percent against the euro. Poland's
zloty also strengthened against the euro and set a
6-week high against the leu.  
    Romanian assets have underperformed in the past weeks even
though both Hungary and Poland are loosening their budgets and
Warsaw faces a political standoff with the opposition and
tension with the European Commission over rule of law issues.
 
    Romania's 10-year bond yield, bid flat at 3.73 percent, is
60 basis points above its level seen before Donald Trump's
surprise U.S. election win last month boosted long-term global
bond yields.
    In comparison, Poland's corresponding yield has risen less
than 40 basis points, trading flat at 3.43 percent. Hungarian
bonds have fully recovered, backed by a series of credit rating
upgrades and the central bank's liquidity boosting measures. 
    The region's good growth prospects and relative stability
have helped its stocks firm in the past weeks, well
outperforming the emerging market stock index, which
has shed 7.5 percent since the U.S. elections.
    
                 CEE        SNAPSHOT  AT                  
                 MARKETS                1125 CET          
                            CURRENCIES                    
                            Latest    Previous  Daily     Change
                            bid       close     change    in 2016
 Czech crown                27.0220   27.0215   +0.00%    -0.09%
 Hungary forint             310.0500  310.6300  +0.19%    1.48%
 Polish zloty               4.4135    4.4175    +0.09%    -3.52%
 Romanian leu               4.5325    4.5270    -0.12%    -0.30%
 Croatian kuna              7.5300    7.5315    +0.02%    1.45%
 Serbian dinar              123.4700  123.5900  +0.10%    -1.62%
 Note: daily     calculate  previous  close at  1800 CET  
 change          d from                                   
                            STOCKS                        
                            Latest    Previous  Daily     Change
                                      close     change    in 2016
 Prague                     920.06    917.53    +0.28%    -3.79%
 Budapest                   31649.61  31700.85  -0.16%    +32.31%
 Warsaw                     1932.13   1943.73   -0.60%    +3.93%
 Bucharest                  7020.05   7021.91   -0.03%    +0.22%
 Ljubljana                  701.89    701.68    +0.03%    +0.82%
 Zagreb                     1989.27   1984.25   +0.25%    +17.73%
 Belgrade        <.BELEX15  714.69    720.53    -0.81%    +10.96%
                 >                                        
 Sofia                      575.74    576.44    -0.12%    +24.92%
                            BONDS                         
                            Yield     Yield     Spread    Daily
                            (bid)     change    vs Bund   change in
 Czech Republic                                           spread
 2-year          <CZ2YT=RR  -0.941    0.103     -015bps   +10bps
                 >                                        
 5-year          <CZ5YT=RR  -0.217    0.013     +029bps   +2bps
                 >                                        
 10-year         <CZ10YT=R  0.476     0.002     +023bps   +1bps
                 R>                                       
 Poland                                                   
 2-year          <PL2YT=RR  1.96      0.008     +275bps   +1bps
                 >                                        
 5-year          <PL5YT=RR  2.713     -0.002    +322bps   +1bps
                 >                                        
 10-year         <PL10YT=R  3.454     0.002     +320bps   +1bps
                 R>                                       
                 FORWARD    RATE      AGREEMENT           
                            3x6       6x9       9x12      3M interbank
 Czech Rep               <  0.28      0.24      0.22      0
                 PRIBOR=>                                 
 Hungary                 <  0.37      0.4       0.48      0.38
                 BUBOR=>                                  
 Poland                  <  1.75      1.755     1.8       1.73
                 WIBOR=>                                  
 Note: FRA       are for ask prices                       
 quotes                                                   
 **************************************************************
 
 (Reporting by Sandor Peto; editing by Mark Heinrich)

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